Australia: Prices for Private Islands Plummet Down Under

March 27th, 2012

The beautiful tropical islands and luxury island resorts that line Australia’s coastline have been selling at dramatically lowered prices in recent years – what is the reason for these steep discounts?

(Bedarra Island, Australia)

The list of private islands in Australia that have sold at prices significantly lower than their values from just five years ago keeps growing, as Bloomberg News recently reported. Contrary to the overall growth in sales of luxury goods and properties experienced in many other markets like Asia – and even the United States has seen some upward movement in top-shelf real estate, according to the New York Times – there has been little upside to be seen in what was once a hot area of Australia’s real estate market.

Some of the discounts reported in the article are truly astonishing – the Club Mediterranee resort on Lindeman Island is currently on the market for AU $10 million, a shocking 90% off the approximately AU $100 million that Club Med originally spent to purchase and refurbish the property in the early years of the 1990’s. Based on a report by Colliers International, other cut-price properties include several on Dunk and Bedarra islands, two of the premier luxury isles on the Great Barrier Reef, which traded at a large discount from their 2007 values. In the case of Dunk Island, a 2007 valuation of AU $51.8 million turned into a sale price of $7.5 million in 2011.

One reason for the decline is obvious; the 2008/2009 financial crisis caused a global freeze in credit, which sent real estate into a tailspin, and prices plunged in most areas of the world. However, the highest of high-end global real estate has recovered significantly over the few years, despite the continual struggle in the lower-end market. In September of 2011, the Wall Street Journal reported that even in the hard-hit United States, luxury properties started touching pre-2007 levels in many popular markets.

There are other causes for Australia’s continuing slump, according to Wayne Bunz, the senior director for hotels for Coldwell Banker Real Estate, and who was the broker responsible for the deals on Dunk and Bedarra and is handling the Lindeman Island sale. Rather, it is an accumulation of different factors. Devastating cyclones in January/February hit numerous island resort properties, but even for those that were unaffected, an overall decline in resort tourism created an economic catastrophe.

(Dunk Island Resort, Australia)

Hospitality-related properties in Australia being advertised as in receivership experienced a huge jump in 2011 – an increase from 47% in 2010 to 85% – and according to the Colliers report, banks are forcing the issue by pressuring resorts with heavy debt loads to declare insolvency or sell into a weak market. This, says Colliers, has resulted in prices not seen since prior to the year 2000. A high Australian currency has also reduced international investment in the hospitality sector, which has historically been a large part of the country’s tourism development.

For Australian holidaymakers, Queensland’s reign of supremacy make be coming to an end – or at least taking a lengthy pause. Bloomberg suggests that incredible deals to overseas destinations in the South Pacific and Asia have also been luring away tourists seeking a beach holiday in the sun. Australia has major challenges when competing with other markets, where the strong currency wields far more purchasing power. But when it comes to the hospitality industry, it takes money to make money, and Queensland’s tourism board has been pressuring the federal government to hand over promised funding to support new marketing efforts. Only time will tell, however, if more advertising will compel Australians to forgo cheap trips to Fiji, Thailand and Bali in favour of a holiday at home.